The North America Securities Administrators Association or NASAA called on the US Securities and Exchange Commission not to reduce their power in policing some smaller public offerings, Reuters reported. The plea came in the form of a letter sent to SEC Chair Mary Jo White on December 12. The SEC is set to introduce new proposals that would enable startup firms to raise larger capital minus the expensive regulatory costs as early as next week.

According to the report, the state regulators are concerned that the proposal could ease the requirements that required these firms to register their offerings with the states. This will deter their ability to identify fraud and give protection to mom-and-pop investors.

NASAA President Andrea Seidt said in the letter, "We urge you, in the strongest terms, to resist calls to pre-empt the states. State-level review will help the commission root out fraud and abuse in this new marketplace and will give investors confidence that securities sold in these offerings are subject to an adequate level of scrutiny."

The proposed rules from the US regulator comes from a requirement in the 2012 Jumpstart Our Business Startups or JOBS Act which eases federal securities laws in order to help small enterprises raise capital. According to the JOBS Act, the SEC needs to amend "Regulation A" rules which are already considered outdated. Under Regulation A, companies can raise as much as $5 million via public deals without the need to register the securities with the SEC but would still need to register the securities in each state where these are sold, the report said.

Critics have criticized Regulation A because it increases the expenses for companies inasmuch as each state has its own securities laws. States may also stop deals from being sold after conducting "merit" reviews of the offerings.

To simplify the requirements for securities registration, NASAA suggested a compromise plan in October where companies would only need to file paperwork once for multiple states, the report said.